Sunday, October 22, 2006

Chinese Economy Slows

Chinese economic growth has slowed over the past three months, with its economic growth rate slowing to 10.4%--from the record high of 11.3% in the three month period from April to June. Industrial growth has also dropped 1.9% to 16.2%, but total trade has increased. Inflation has remained low, at 1.9%. This likely indicates that the governmental policies meant to curb “rampant growth” has taken its desired effect. Uncontrolled growth can often lead to an inflation crisis or other financial crises. The Chinese government has called this undesired effect “overheating” and implemented a series of policies to prevent out of control lending, inflation, and leaving government and banks exposed to bad debts.

“The central government undertook a series of macro-economic control policies and these policies have achieved initial effects since the third quarter,” NBS spokesman Li Xiaochao told a briefing in Beijing. Over the past year, these measures have included two interest rate hikes, increases in bank reserve requirements, and the intentional slowing of the land sale market. Furthermore, the government has given fewer approvals for new business investments.

Economists, moreover, comment that most of this “slow growth” was expected. The growth is higher than what the Chinese government had been targeting, however, and the Chinese believe that the higher than predicted growth rates may continue. Economists are thus further encouraging “tightening measures” to “contain investment.”

QUESTIONS1. How effective can Chinese growth-curtailing implements be in our globalized economy?

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